The Debt Limit Deal Is a Gift for Republicans

The LA Times finds a nut and recognizes that, no matter what deal ultimately emerges from the debt limit talks, it’s going to be a Republican victory:

Even as the political battle mounts over federal spending, the end result for federal policy is already visible — and clearly favors Republican goals of deep spending cuts and drastically fewer government services.

President Obama entered the fray last week to insist that federal deficits can’t be reduced through spending reductions alone. Federal tax revenue also must rise as part of whatever deficit reduction package Congress approves this summer, he said. Obama has been pushing to end a series of what he calls tax loopholes and tax breaks for the rich.

But even if Obama were to gain all the tax-law changes he wants, new revenue would make up only about 15 cents of each dollar in deficit reduction in the package. An agreement by the Republicans to accept new revenue would be a political victory for Obama because “no new taxes” has been such an article of faith for the GOP.

In a perverse way, I’ll bet that the White House LIKES this article being out there, because it shows how Republicans won’t even accept a deal massively tilted to their ends, or something. But the article is really an indictment. And it reflects what I’ve been saying for months. The entire concept of trading an increase in the debt limit, a routine bill that usually passes with grumbling but little else, for a transformation of government, is Grover Norquist’s most long-hoped dream realized.

First of all, the LAT writes that this would be the third major GOP victory in less than a year, the extension of the Bush tax cuts and the 2011 appropriations bill being the other two. Second, it confirms once again that $200 billion in cuts to Medicare and Medicaid have been agreed to by the White House, although we still don’t know what those cuts signify. And third, it clarifies the numbers I laid out yesterday, with the Administration having reduced their revenue demands from the already-small number: [cont’d.]

The White House is seeking about $300 billion in new revenue over the decade, less than half the amount it sought when Obama first outlined his goals last spring, based on the proposals in negotiations.

Obama once targeted the wealthiest Americans, the top 2% who earn beyond $200,000 a year, proposing to cap their income tax deductions.

But weeks of closed-door talks have diminished that goal. Now, even a deduction cap on those Americans earning beyond $500,000 a year — just 1.3 million Americans, fewer than 1% of all taxpayers — has been dashed. The latest offer on the table would be a more limited cap, to generate an additional $130 billion.

Previously, the capping of itemized deductions would have brought in $290 billion. So that results in a reduction of $160 billion in revenues, for a total of $257 billion, going off of the rest of yesterday’s numbers. If you add in a repeal of the ethanol subsidy, not on yesterday’s list but in this article, you get to $300 billion. But the ethanol subsidy is set to expire at the end of the year anyway (it’s one of these perennial tax extenders), so that’s not really a change from the baseline.

What the LAT doesn’t explain is what a more liberal economic policy would look like right now. I don’t blame them: barely anyone is expressing that vision. But here’s at least someone, Laura D’Andrea Tyson of Berkeley, who understand that the near-term jobs crisis of 14 million Americans out of work due to a lack of demand is the priority right now:

So what should policy makers do? They should pair fiscal measures aimed at job creation now with a credible plan to reduce the deficit gradually –- and pass both at once, as a package. Approving a deficit-reduction plan but deferring its starting date until the economy is near full employment will cut the odds that immediate contraction will tip the faltering economy back into recession.

Indeed, passage of such a package could bolster growth by easing investor concerns about future deficits, reducing long-term interest rates and strengthening consumer and business confidence.

There is strong bipartisan support among budget negotiators in Washington for an enforceable debt target as an essential component of a credible deficit-reduction plan. Breaching the target would lead to automatic changes in spending and revenues. I believe we should pair an unemployment-rate target with a debt target. The unemployment-rate target would postpone significant spending cuts or revenue increases to achieve the debt target until the economy is closer to full employment.

Most economists believe that full employment for the American economy implies a structural unemployment rate of 5 to 6 percent. The unemployment-rate target should be set within that range. Current forecasts by the C.B.O., the Office of Management and Budget, the Hamilton Project and most private-sector economists predict that this target will not be achieved until 2015 or later. That’s when serious actions to narrow the long-run fiscal gap would begin to take effect.

The “spending now, deficit reduction later” idea is pretty neoliberalish, but at least it has some kind of internal logic to it. Tyson doesn’t offer anything substantive for stimulus except another round of payroll tax cuts, but the unemployment-rate target idea is brilliant, holding spending harmless until we are at full employment. My problem is that she sees no problem with waiting until 2015 until we get there, but on the whole, it’s better than what just about anyone else is saying right now.

This all comes on the heels of a White House report showing that the 2009 Recovery Act saved or created as much as 3.6 million jobs so far, and in the first quarter of 2011 increased GDP by 2.3 to 3.2%. Because GDP in Q1 was only 1.9%, this means that government stimulus was the only thing between us and a recession that would still be going over three years after it began. Any reasonable analysis of that fact would say that more stimulus is needed to increase economic growth and bring down the unemployment rate. Sadly, the White House doesn’t even read their own reports.

The Debt Limit Deal Is a Gift for Republicans

The LA Times finds a nut and recognizes that, no matter what deal ultimately emerges from the debt limit talks, it’s going to be a Republican victory:

Even as the political battle mounts over federal spending, the end result for federal policy is already visible — and clearly favors Republican goals of deep spending cuts and drastically fewer government services.

President Obama entered the fray last week to insist that federal deficits can’t be reduced through spending reductions alone. Federal tax revenue also must rise as part of whatever deficit reduction package Congress approves this summer, he said. Obama has been pushing to end a series of what he calls tax loopholes and tax breaks for the rich.

But even if Obama were to gain all the tax-law changes he wants, new revenue would make up only about 15 cents of each dollar in deficit reduction in the package. An agreement by the Republicans to accept new revenue would be a political victory for Obama because “no new taxes” has been such an article of faith for the GOP.

In a perverse way, I’ll bet that the White House LIKES this article being out there, because it shows how Republicans won’t even accept a deal massively tilted to their ends, or something. But the article is really an indictment. And it reflects what I’ve been saying for months. The entire concept of trading an increase in the debt limit, a routine bill that usually passes with grumbling but little else, for a transformation of government, is Grover Norquist’s most long-hoped dream realized.

First of all, the LAT writes that this would be the third major GOP victory in less than a year, the extension of the Bush tax cuts and the 2011 appropriations bill being the other two. Second, it confirms once again that $200 billion in cuts to Medicare and Medicaid have been agreed to by the White House, although we still don’t know what those cuts signify. And third, it clarifies the numbers I laid out yesterday, with the Administration having reduced their revenue demands from the already-small number:

The White House is seeking about $300 billion in new revenue over the decade, less than half the amount it sought when Obama first outlined his goals last spring, based on the proposals in negotiations.

Obama once targeted the wealthiest Americans, the top 2% who earn beyond $200,000 a year, proposing to cap their income tax deductions.

But weeks of closed-door talks have diminished that goal. Now, even a deduction cap on those Americans earning beyond $500,000 a year — just 1.3 million Americans, fewer than 1% of all taxpayers — has been dashed. The latest offer on the table would be a more limited cap, to generate an additional $130 billion.

Previously, the capping of itemized deductions would have brought in $290 billion. So that results in a reduction of $160 billion in revenues, for a total of $257 billion, going off of the rest of yesterday’s numbers. If you add in a repeal of the ethanol subsidy, not on yesterday’s list but in this article, you get to $300 billion. But the ethanol subsidy is set to expire at the end of the year anyway (it’s one of these perennial tax extenders), so that’s not really a change from the baseline.

What the LAT doesn’t explain is what a more liberal economic policy would look like right now. I don’t blame them: barely anyone is expressing that vision. But here’s at least someone, Laura D’Andrea Tyson of Berkeley, who understand that the near-term jobs crisis of 14 million Americans out of work due to a lack of demand is the priority right now:

So what should policy makers do? They should pair fiscal measures aimed at job creation now with a credible plan to reduce the deficit gradually –- and pass both at once, as a package. Approving a deficit-reduction plan but deferring its starting date until the economy is near full employment will cut the odds that immediate contraction will tip the faltering economy back into recession.

Indeed, passage of such a package could bolster growth by easing investor concerns about future deficits, reducing long-term interest rates and strengthening consumer and business confidence.

There is strong bipartisan support among budget negotiators in Washington for an enforceable debt target as an essential component of a credible deficit-reduction plan. Breaching the target would lead to automatic changes in spending and revenues. I believe we should pair an unemployment-rate target with a debt target. The unemployment-rate target would postpone significant spending cuts or revenue increases to achieve the debt target until the economy is closer to full employment.

Most economists believe that full employment for the American economy implies a structural unemployment rate of 5 to 6 percent. The unemployment-rate target should be set within that range. Current forecasts by the C.B.O., the Office of Management and Budget, the Hamilton Project and most private-sector economists predict that this target will not be achieved until 2015 or later. That’s when serious actions to narrow the long-run fiscal gap would begin to take effect.

The “spending now, deficit reduction later” idea is pretty neoliberalish, but at least it has some kind of internal logic to it. Tyson doesn’t offer anything substantive for stimulus except another round of payroll tax cuts, but the unemployment-rate target idea is brilliant, holding spending harmless until we are at full employment. My problem is that she sees no problem with waiting until 2015 until we get there, but on the whole, it’s better than what just about anyone else is saying right now.

This all comes on the heels of a White House report showing that the 2009 Recovery Act saved or created as much as 3.6 million jobs so far, and in the first quarter of 2011 increased GDP by 2.3 to 3.2%. Because GDP in Q1 was only 1.9%, this means that government stimulus was the only thing between us and a recession that would still be going over three years after it began. Any reasonable analysis of that fact would say that more stimulus is needed to increase economic growth and bring down the unemployment rate. Sadly, the White House doesn’t even read their own reports.